Question

At the end of the year, Breyer Associates had a credit balance in its allowance for uncollectible accounts of $12,000 before adjustment. The balance in Breyer's gross accounts receivable is $600,000. Breyer's management estimates that 10% of its accounts receivable balance will not be collected. What journal entry should Breyer record to adjust its allowance for uncollectible accounts

Answer 1

December 31, 202x, adjustment to allowance for doubtful accounts

Dr Bad debt expense 48,000

Cr Allowance for doubtful accounts 48,000

Step-by-step explanation:

total estimated bad debt = $600,000 x 10% = $60,000

allowance for doubtful accounts balance = $12,000

this account must be increased by $60,000 - $12,000 = $48,000

Allowance for doubtful accounts is a contra asset account that decreases the net balance of accounts receivable. In this case, the net balance of accounts receivable after the adjustment = $600,000 - $60,000 = $540,000